Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.

Page Image

Image Caption

Page Content

Employees hit hard by Hurricane Matthew will find it easier to use their 401(k) or similar plans for emergency relief, and affected employers have some leeway in meeting benefit plan filing deadlines under the Employee Retirement Income Security Act (ERISA).

The IRS said that participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans, may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules.

As a result, "eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape," the IRS said. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Matthew and designated for individual assistance by the Federal Emergency Management Agency (FEMA). Currently, parts of North Carolina, South Carolina, Georgia and Florida qualify for individual assistance (a
list of eligible counties is posted on the FEMA website). To qualify for this relief, hardship withdrawals must be made by March 15, 2017.

This broad-based relief means that a retirement plan can allow a victim of Hurricane Matthew to take a hardship distribution or borrow up to the specified statutory limits from the victim's retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in the announcement.

Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable. Also, a 10 percent early-withdrawal tax usually applies.

Though individual retirement account participants are barred from taking loans from their IRAs, they may be eligible to receive distributions under liberalized procedures, the IRS said. More information about other relief related to Hurricane Matthew can be found on the IRS
disaster relief page.

"The department understands that plan fiduciaries, employers, labor organizations, service providers, and participants and beneficiaries may encounter compliance-related issues over the next few months in connection with employee benefit plans covered by [ERISA] as the implications of this hurricane unfold," Assistant Secretary of Labor Phyllis Borzi said in a news release.

The DOL recognized that some employers and service providers were unable to forward participant payments and withholdings to employee retirement plans within required timeframes and that "in such instances, the department will not—solely on the basis of a failure attributable to Hurricane Matthew"—seek to enforce penalties "to the extent that affected employers, and service providers, act reasonably, prudently and in the interest of employees to comply as soon as practical under the circumstances."

Health Plan Compliance

The DOL further recognized that plan participants and beneficiaries may have encountered an array of problems due to the hurricane, such as difficulties meeting certain deadlines for filing health benefit claims and COBRA elections. "Plan fiduciaries should make reasonable accommodations to prevent the loss of benefits in such cases and should take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established timeframes," the DOL said.

Furthermore, when full and timely compliance by group health plans and issuers may not have been possible, the DOL noted that "our approach to enforcement will be marked by an emphasis on compliance assistance and include grace periods and other relief where appropriate, including when physical disruption to a plan or service provider's principal place of business makes compliance with pre-established timeframes for certain claims' decisions or disclosures impossible."

Was this article useful? SHRM offers thousands of tools, templates and other exclusive member benefits, including compliance updates, sample policies, HR expert advice, education discounts, a growing online member community and much more. Join/Renew Now and let SHRM help you work smarter.

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.